Question 1

The increase in the currency ratio during World War II was due to

Accepted Answer

A) bank panics. 
B) a drop in the rate of interest paid on checking deposits. 
C) the spread of ATMs. 
D) high taxes and illegal activities. 
A) bank panics. 
B) a drop in the rate of interest paid on checking deposits. 
C) the spread of ATMs. 
D) high taxes and illegal activities.

Question 2

In the model of the money supply process,the Federal Reserve's role in influencing the money supply is represented by

Accepted Answer

A) both the required reserve ratio and the market interest rate. 
B) the required reserve ratio,nonborrowed reserves,and borrowed reserves. 
C) only borrowed reserves. 
D) only nonborrowed reserves. 
A) both the required reserve ratio and the market interest rate. 
B) the required reserve ratio,nonborrowed reserves,and borrowed reserves. 
C) only borrowed reserves. 
D) only nonborrowed reserves.

Question 3

The equation that represents M2 in the model of the money supply process is

Accepted Answer

A) M2 = C + D 
B) M2 = C + D + T - MMF. 
C) M2 = C + D - T + MMF. 
D) M2 = C + D + T + MMF. 
A) M2 = C + D 
B) M2 = C + D + T - MMF. 
C) M2 = C + D - T + MMF. 
D) M2 = C + D + T + MMF.

Question 4

If the required reserve ratio is one-third,currency in circulation is $300 billion,checkable deposits are $900 billion,and there is no excess reserve,then the monetary base is

Accepted Answer

A) $300 billion. 
B) $600 billion. 
C) $333 billion. 
D) $667 billion. 
A) $300 billion. 
B) $600 billion. 
C) $333 billion. 
D) $667 billion.

Question 5

The monetary base declines when

Accepted Answer

A) the Fed extends discount loans. 
B) Treasury deposits at the Fed decrease. 
C) float increases. 
D) the Fed sells securities. 
A) the Fed extends discount loans. 
B) Treasury deposits at the Fed decrease. 
C) float increases. 
D) the Fed sells securities.

Question 6

An increase in the monetary base that goes into ________ is not multiplied,while an increase that goes into ________ is multiplied.

Accepted Answer

A) deposits;currency 
B) excess reserves;currency 
C) currency;excess reserves 
D) currency;deposits 
A) deposits;currency 
B) excess reserves;currency 
C) currency;excess reserves 
D) currency;deposits

Question 7

An increase in which of the following leads to a decline in the monetary base?

Accepted Answer

A) float 
B) discount loans 
C) foreign deposits at the Fed 
D) SDRs 
A) float 
B) discount loans 
C) foreign deposits at the Fed 
D) SDRs

Question 8

The percentage of deposits that banks must hold in reserve is the

Accepted Answer

A) excess reserve ratio. 
B) required reserve ratio. 
C) total reserve ratio. 
D) currency ratio. 
A) excess reserve ratio. 
B) required reserve ratio. 
C) total reserve ratio. 
D) currency ratio.

Question 9

If reserves in the banking system increase by $100,then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A) 0.01. 
B) 0.05. 
C) 0.10. 
D) 0.20. 
A) 0.01. 
B) 0.05. 
C) 0.10. 
D) 0.20.

Question 10

If the Fed decides to reduce bank reserves,it can

Accepted Answer

A) purchase government bonds. 
B) extend discount loans to banks. 
C) sell government bonds. 
D) print more currency. 
A) purchase government bonds. 
B) extend discount loans to banks. 
C) sell government bonds. 
D) print more currency.

Question 11

The relationship between borrowed reserves (BR),the nonborrowed monetary base (MBₙ),and the monetary base (MB)is

Accepted Answer

A) MB = MBₙ - BR. 
B) BR = MBₙ - MB. 
C) BR = MB - MBₙ. 
D) MB = BR - MBₙ. 
A) MB = MBₙ - BR. 
B) BR = MBₙ - MB. 
C) BR = MB - MBₙ. 
D) MB = BR - MBₙ.

Question 12

Total Reserves minus vault cash equals

Accepted Answer

A) bank deposits with the Fed. 
B) excess reserves. 
C) required reserves. 
D) currency in circulation. 
A) bank deposits with the Fed. 
B) excess reserves. 
C) required reserves. 
D) currency in circulation.

Question 13

In the simple deposit expansion model,an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

Accepted Answer

A) sold $1,000 in government bonds. 
B) sold $100 in government bonds. 
C) purchased $1,000 in government bonds. 
D) purchased $100 in government bonds. 
A) sold $1,000 in government bonds. 
B) sold $100 in government bonds. 
C) purchased $1,000 in government bonds. 
D) purchased $100 in government bonds.

Question 14

If the required reserve ratio is 15 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the M1 money multiplier is

Accepted Answer

A) 2.5. 
B) 1.67. 
C) 2.3. 
D) 0.651. 
A) 2.5. 
B) 1.67. 
C) 2.3. 
D) 0.651.

Question 15

If the required reserve ratio is 25 percent,the simple deposit multiplier is

Accepted Answer

A) 5.0. 
B) 2.5. 
C) 4.0. 
D) 10.0. 
A) 5.0. 
B) 2.5. 
C) 4.0. 
D) 10.0.

Question 16

The Fed does not tightly control the monetary base because it does NOT completely control

Accepted Answer

A) open market purchases. 
B) open market sales. 
C) borrowed reserves. 
D) the discount rate. 
A) open market purchases. 
B) open market sales. 
C) borrowed reserves. 
D) the discount rate.

Question 17

Which of the following are NOT assets on the Fed's balance sheet?

Accepted Answer

A) securities 
B) discount loans 
C) cash items in the process of collection 
D) deferred availability cash items 
A) securities 
B) discount loans 
C) cash items in the process of collection 
D) deferred availability cash items

Question 18

In the simple deposit expansion model,if the required reserve ratio is 20 percent and the Fed increases reserves by $100,checkable deposits can potentially expand by

Accepted Answer

A) $100. 
B) $250. 
C) $500. 
D) $1,000. 
A) $100. 
B) $250. 
C) $500. 
D) $1,000.

Question 19

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is greater than one,an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

A) decrease;increase 
B) increase;increase 
C) decrease;decrease 
D) increase;decrease 
A) decrease;increase 
B) increase;increase 
C) decrease;decrease 
D) increase;decrease

Question 20

The upward trend in the currency-deposit ratio during 1994-2007 can be explained by

Accepted Answer

A) the increased holdings of U.S. currency by foreigners. 
B) bank panics. 
C) a drop in the rate of interest paid on checking deposits. 
D) high taxes and illegal activities. 
A) the increased holdings of U.S. currency by foreigners. 
B) bank panics. 
C) a drop in the rate of interest paid on checking deposits. 
D) high taxes and illegal activities.

Exam 14: The Money Supply Process

The increase in the currency ratio during World War II was due to

In the model of the money supply process,the Federal Reserve's role in influencing the money supply is represented by

The equation that represents M2 in the model of the money supply process is

If the required reserve ratio is one-third,currency in circulation is $300 billion,checkable deposits are $900 billion,and there is no excess reserve,then the monetary base is

The monetary base declines when

An increase in the monetary base that goes into ________ is not multiplied,while an increase that goes into ________ is multiplied.

An increase in which of the following leads to a decline in the monetary base?

The percentage of deposits that banks must hold in reserve is the

If reserves in the banking system increase by $100,then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is

If the Fed decides to reduce bank reserves,it can

The relationship between borrowed reserves (BR),the nonborrowed monetary base (MBₙ),and the monetary base (MB)is

Total Reserves minus vault cash equals

In the simple deposit expansion model,an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

If the required reserve ratio is 15 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the M1 money multiplier is

If the required reserve ratio is 25 percent,the simple deposit multiplier is

The Fed does not tightly control the monetary base because it does NOT completely control

Which of the following are NOT assets on the Fed's balance sheet?

In the simple deposit expansion model,if the required reserve ratio is 20 percent and the Fed increases reserves by $100,checkable deposits can potentially expand by

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is greater than one,an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.

The upward trend in the currency-deposit ratio during 1994-2007 can be explained by

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

An increase in the monetary base that goes into is not multiplied,while an increase that goes into is multiplied.

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is greater than one,an increase in the currency-deposit ratio causes the M1 money multiplier to and the money supply to .